Degrees of Market Power
Market Failure: Market Power
AO3·HL
Syllabus requirement
Defines market power across structures. Perfect competition: no market power. Imperfect markets: firms are price makers.
Assessment objectives
AO3 Synthesis and Evaluation
Higher LevelThis topic is assessed at HL.
Summary
This topic explains how market power is the capacity of a firm to influence price by changing supply or demand and shows how different degrees of market power define market structures such as perfect competition. It examines price-taking behaviour in perfect competition, how firms set output where MC = MR, short-run profit possibilities (abnormal profit, normal profit, losses), and the long-run adjustment that leads to zero economic profit. It also introduces average and marginal cost relationships and the idea of allocative efficiency.
